Washington State Real Estate Practice Exam 2025 – 400 Free Practice Questions to Pass the Exam

In real estate transactions, earnest money serves as a deposit made by the buyer to demonstrate their seriousness in purchasing a property. When a transaction falls through, the ultimate disposition of the earnest money depends on the terms laid out in the purchase agreement and the circumstances surrounding the cancellation.

Forfeiture of earnest money is contingent upon the specific conditions outlined in the contract. If the buyer fails to follow through on their obligations without a valid reason as specified in the contract (such as not securing financing, failing to meet contingencies, etc.), the seller may have the right to keep the earnest money as compensation for the lost opportunity of selling the property to someone else.

Conversely, if the transaction fails due to a valid reason—like an unsatisfactory inspection or an inability to secure financing—then the earnest money is typically returned to the buyer. However, the language of the agreement holds significant sway in determining what happens to the earnest money, which is why understanding those terms is crucial.

Thus, option C captures the nuance that the handling of earnest money is not absolute but varies based on the conditions agreed upon by both parties in the contract.